Letters of Indemnity

There is a practice of issuing letters of indemnity against clean bills of lading. These letters of indemnity state that in consideration of being given a clean bill of lading the holder will indemnify the carrier against all risks and claims arising from the defect. Such a letter of indemnity is unenforceable by legal process since it is given to induce the issue of what can only be described as a fraudulent document of title. In Brown Jenkinson & Co. v Percy Dalton (London) Ltd. (1957) it was held that an agreement between agents of the shipowners and the shippers whereby the shipowner’s agents agreed to accept from the shippers the issue of a letter of indemnity in exchange for the issue of a clean bill of lading in respect of defective goods was considered by the Court of Appeal to be illegal and unenforceable in the eyes of the law. The carriers had made a representation which they knew to be false with intent that it should be acted on by the indorsees of the bill of lading. The bill of lading serves three major purposes: It serves as a receipt for the goods shipped; it is a document of title to the goods by means of which the property may be transferred to the holder of the bill of lading and upon which money may be advanced. It may also contain or evidence the contract of carriage. The bill of lading as a receipt.   The original function of the bill of lading was that of a receipt.  It begins with the words “shipped” or received and then specifies the goods according to quantity, description and shipping marks.  The bill of lading is usually signed by the master or agent acknowledging the quantity of goods and condition of goods when put on board.  A bill of lading is prima facie evidence of quantity shipped and a shipowner is bound to deliver the full amount of goods signed for in the bill of lading unless he can prove that the whole or some part of it was not shipped.